Monday, October 25, 2010

Economics Bloggers Pessimistic According to Latest Kauffman Survey

The new Kauffman Quarterly Survey of Leading Economics Bloggers (of which I'm part) is out. According to the press release:
For the fourth quarter in a row, the nation's top economics bloggers have conveyed a steadily deteriorating view of the U.S. economy in responses to a Ewing Marion Kauffman Foundation survey released today. In the fourth Kauffman Economic Outlook: A Quarterly Survey of Leading Economics Bloggers respondents' outlook on the U.S. economy is more pessimistic than in any previous quarterly survey in 2010, with 99 percent saying that conditions are mixed, facing recession or in recession. When asked about the probability of a double-dip recession in the United States, the average response is a 41 percent probability; two-fifths see a 20 percent probability, and opinion declines toward higher probabilities.
The majority of bloggers is betting that the American economy will experience a combination of higher inflation and real interest rates and positive but slow growth on a three-year horizon:

Saturday, October 23, 2010

Rammstein Plays Amerika

Very cool "Amerika" video by Rammstein.
"We All Live in Amerika", enjoy!

Thursday, October 21, 2010

Guy Sorman on What the News Doesn't Tell You About the French Strikes

I've been writing a series of articles (in Portuguese) for OrdemLivre.org that discusses differences between freedoms in the US and in France. In the latest article I talk about how the most important trend in European countries after the Second World War, including France, is characterized by continuous and unstoppable market liberalization. Sorman, who is among the most knowledgeable observers of these two societies, independently arrives to similar conclusions in this Wall Street Journal article. He concludes:
To conclude that France never changes ... would be slightly mistaken. In spite of a Napoleonic right and a Marxist left, the French economy has become much more market-oriented than it was 20 or 30 years ago. The best and the brightest now want to become entrepreneurs, not top bureaucrats. Such an evolution was not desired by political leaders but instead has been forced on French society through the liberating influence of globalization and the European Union. This confrontation between Mr. Sarkozy and the unions doesn't mean much compared to those historical trends.

Tuesday, October 19, 2010

Guy Sorman on the French Fondness for Strikes

Guy Sorman explains the French fondness for strikes to Americans:
A l'inverse , on me demande aux Etats-Unis, d'expliquer les grèves françaises, vécues par les Américains comme un vent de folie et une atteinte inacceptable aux libertés individuelles. Il me faut alors rappeler combien en France, on aime jouer la Révolution: l'Histoire se répète en farce , écrivait Karl Marx. Toute farce n'est cependant pas drôle.
I translate:
On the other hand, they ask me in the US how to explain the French strikes, seen by Americans as a wave of madness and an unacceptable attack on individual freedoms. I am obliged to remind them of how much in France we love to reenact Revolution: history repeats itself as farce, has written Karl Marx. But not every farce is entertaining.

Rachman on How France Ignores Its Fiscal Reality

Here's an extract from a Financial Times article by Gideon Rachman on how hard it is for the French government to make the French welfare system more sustainable and to turn it into less of an economic burden for future generations and for the French economy through the reduction of entitlements:

The French seem to enjoy strikings. Last week there was a slightly festive air – with flags, drums, torches, chants and even fancy dress on display. There is something faintly ridiculous about schoolchildren striking to protect their pensions, which makes it tempting to dismiss all this as street theatre and to assume that the real decisions will be made elsewhere. But that would be a mistake. The French strikes are causing serious disruption to the economy, with a threat that the country could soon run short of petrol...

The French people ... still do not seem to realise the potential gravity of their situation. Their government’s proposal to raise the retirement age from 60 to 62 is an extremely mild reform – certainly compared with the cuts in wages, pensions and services that are being forced through in other debt-stricken European countries such as Greece, Spain, Ireland and even Britain. And yet France’s proposed reforms have brought millions of demonstrators on to the streets.

It may need a genuine fiscal crisis finally to persuade the French that, as Margaret Thatcher once put it: “There is no alternative."

It's interesting to notice however that while France is at least fighting its way back into long-term solvability, the US continue to develop an entitlement culture and to do all they can to bankrupt their own welfare system.

Monday, October 18, 2010

A Tale of Two Continents

Consider these latest news about the economy in the US and in Europe:

United States:
1. Bernanke Signals Intent to Further Spur Economy - New York Times, (Ben Bernanke), October 15, 2010
2. U.S. Posts Second-Largest Annual Budget Deficit on Record, Bloomberg.com: Economy, October 15, 2010
3. 'Liquidity Trap' Plagues U.S., More Stimulus Is Required, Fed's Evans Says, Bloomberg.com: Economy, October 16, 2010
4. Dollar Declines for Fifth Week on Prospects of More Monetary Easing by Fed, Bloomberg.com: Economy, October 16, 2010
5. Current Deficits Are Not the Problem, Brookings Institution: Recent Research and Commentary, October 15, 2010

Europe:
1. Trichet Says Raising ECB's Inflation Target Would Have 'Disastrous' Effect, Bloomberg.com: Economy, October 16, 2010
2. ECB's Trichet: Euro zone needs stricter fiscal reforms - Reuters, (Jean-Claude Trichet), October 16, 2010
3. Basel III must not sacrifice economic growth - Lagarde - Reuters India, (European Economy), October 15, 2010
4. Speech Jean-Claude Trichet: Global economic governance 
and euro area economic governance, European Central Bank: Press Releases, October 16, 2010
5. 15Oct/Jean-Claude Trichet: Europe's frameworks for macro-prudential oversight and economic governance, Bank for International Settlements: Central Bankers Speeches, October 15, 2010

Two regions with similar (although unidentical) problems, and two opposite diagnostics and sets of solutions. Time will show that only one path was right. Which one? If you read my blog, you know what's my guess.

Saturday, October 16, 2010

Benoît Mandelbrot Passes Away at 85

When the weather changes, nobody believes the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed.

Benoît Mandelbrot

French-American mathematician Benoît Mandelbrot passed away in Cambridge, MA. He became famous for his studies on fractal geometry (HT De Gustibus Non Est Disputandum).

Quote of the Day

Utopia is exempt from any obligation to produce results, that its only function is to permit its champions to condemn that which exists in the name of that which does not.

L'utopie n'est astreinte à aucune obligation de résultats. Sa seule fonction est de permettre à ses adeptes de condamner ce qui existe au nom de ce qui n'existe pas.

From Jean-François Revel's Last Exit to Utopia (HT Rodrigo Constantino).

Friday, October 15, 2010

The 300 Foot Rule, or How the City of Duluth Is Helping Me to Lose My House to Foreclosure

To those who haven't ever lived in Duluth, Minnesota, I must explain it first. The 300 foot rule is a regulation passed a few years ago by the City of Duluth that impedes any kind of leasing of a dwelling in a large region around campus when there's another leasing inside a 300 foot radius from it.

It means that, in the case of my house (picture on the side), which is currently for sale in Duluth, I've been impeded by the rule to rent it not only to students but to single families too. By the way, renting to students wouldn't be economical to me. Things look a little bit more absurd considered that my house is located in a single-family only street, 10 minutes away from campus.

The house is probably going to foreclosure soon due to lack of buyers. I don't think this is going to help the City of Duluth neither the homeowners in the neighborhoods affected, which by the way may one day find themselves in the same conundrum. In other words, the solution that the City found for its law enforcement problem was to transfer its cost to the citizens that need to sell or rent a house in a sour market.

More interesting is the fact that the city warns me ex ante that my house is going to be policed and I'm going to be fined if I defy the rule. Well, if I'm going to be policed anyway, wouldn't it be more logical for the city instead to make sure that students don't party or that the houses are rented only to single families?

What amazes me the most however is the fact that it was exactly in America where I couldn't exercise my property rights to such an extent for the first time in my entire life.

Thursday, October 14, 2010

The Economist on the Demonstrations Against Retirement Benefits Reform in France

Here's an interesting segment from a well-written short article that appeared in the The Economist on the demonstrations against the much needed retirement benefits reform proposed by the French administration (italics are mine):

... First, although the numbers on the streets are high, it is the strikes, not the demos, that have the power to disrupt. Thanks in part to a law designed to ensure minimum service in schools and on public transport during strikes, and to the fact that workers are no longer paid when they walk out, strikes do not paralyse the country in quite the way they once did. (French commuters have also learned to take one of their numerous days off during strikes, reducing the pressure on trains.)

At the same time, public opinion has shifted. This is not immediately clear from polls. Some 70% of respondents to one said that they backed the strikes, more than the 54%-62% in favour in late 1995. Yet this may be precisely because strikes are less intolerable now for those who do try to get to work. And for all the drama on the street, in the same poll 53% said that the raising of the retirement age was "acceptable" and 70% that it was "responsible vis-à-vis future generations". A silent majority seems to know that demography and economics make pension reform inevitable.

Monday, October 11, 2010

Nobel Prize in Economics Goes to Diamond, Mortensen & Pissarides

The Nobel Committee recognized this year the very important contributions to macroeconomics of Diamond, Mortensen & Pissarides:
This year’s three Laureates have formulated a theoretical framework for search markets. Peter Diamond has analyzed the foundations of search markets. Dale Mortensen and Christopher Pissarides have expanded the theory and have applied it to the labor market. The Laureates’ models help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy. This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing. One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.
It's interesting to notice that earlier this year the US Senate controlled by the Democratic Party rejected the nomination of Diamond for the Federal Reserve Board due to the obstruction of a Republican Senator who declared that "Professor Diamond is an authority on tax policy and Social Security. It is not clear, however, that his background is ideally suited for monetary policy, especially given the current challenges facing the Fed."

I'd say revenge is a dish best served cold.

Economics Nobel Laureate Maurice Allais Has Died at Age 99

Maurice Allais has died in Paris at age 99 (HT Marginal Revolution's Alex Tabarrok). A polymath that has contributed to physics among other fields, he won the Nobel Prize in Economics for his work on the theory of markets and the efficient utilization of resources.

Saturday, October 9, 2010

This Year, a Peace Nobel Prize that Isn't a Bad Joke

Congratulations to the Peace Nobel Committe for choosing this year someone that really did something at his personal cost for peace and in particular for the cause of freedom: prisoner of conscience Liu Xiaobo. It partially redeems the Committee from its many past mistakes.

Thursday, October 7, 2010

Mario Vargas Llosa Wins the Literature Nobel

Seeking to impose a cultural identity on a people is equivalent to locking them in a prison and denying them the most precious of liberties — that of choosing what, how, and who they want to be.

Mario Vargas Llosa

The Nobel Committee for Literature was very graceful again this year by recognizing the work of Mario Vargas Llosa. Indeed a well-deserved prize.

Wednesday, October 6, 2010

Is "Nudging" Nothing Else than Newspeak for "Influencing"?

It's very fashionable these days to talk about "nudging," a concept promoted most famously by Richard Thaler, an eternal and strong candidate for the Nobel Prize in Economics. But isn't "nudging" maybe nothing else than "influencing", fancifully disguised as a tool to be used solely for "good," in an example of age-old newspeak? "Nudging," by the way, has also been called, in a way that looks to me suspiciously "newspeakish," "libertarian paternalism" or "choice architecture."

This post about "Nazi nudging" by Marginal Revolution's Alex Tabarrok, and the discussion that follows in its comments section, is quite elucidative. Thaler himself said this about "nudging":

BuzzFlash: Nudges by your definition are well intentioned. Benevolent nudgers “are self-consciously attempting to move people in directions that will make their lives better.” Can you contrast that to a more nefarious choice architecture?

Richard H. Thaler: Nudgers CAN be well-intentioned but can also be self-interested. We are being nudged all the time by marketers, religions, spouses, etc. Sunstein and I did not invent nudging! Our goal is to give benevolent nudgers an instruction manual. The evil nudgers have already mastered most of these tools, alas.

It looks to me like there's a large component of wishful thinking and not much public choice theory substance in the way Thaler looks at his own "creation."

PS: I'd like to add the following.

It's not only that "nudging" may lack originality and economic soundness as a concept. There's also a potentially very significant moral issue behind Thaler's interpretation of its own ideas. I'll explain with an example: Coke is not telling you that "it's doing marketing for your own good" when it tries to convince you to drink more Coke. Any adult in control of his or her mental faculties can understand Coke's motivations, and can choose to let himself or herself "go with them" or "avoid them."

Moreover, it would be absolutely disingenuous if Coke would tell you otherwise. Thaler's definition of "evil nudging" therefore should, in most circumstances, be easily recognized as "influencing" by mentally capable people. On the other hand, trying to pass "influencing" by governments, or by anyone in a position of authority, as "well-intentioned nudging" is to me the same as trying to hide the fact that the authority is just using its powers to influence people's decisions and choices according to what the authority believes to be right or according to the self-interested motivations of the authority.

What I mean is that, once the newspeak is peeled off, "nudging" looks a lot like the defense of the right of people in positions of authority to influence other people's choices. If this is the case, then why not just call a spade a spade?

Friday, October 1, 2010

The New NRC Ranking of US Economics Graduate Schools

The new NRC ranking of Ph.D. programs in economics in the US is out (HT Mankiw). It shows a very significant jump ahead of my doctoral alma mater, the University of Wisconsin - Madison. Maybe the result of departmental changes that took place in part while I was studying there? Or would it just reflect changes in ranking criteria? Anyway, way to go Badgers!